Cannabis Tax Revenues and Tier 3 Programs Letter Final 2-24-24

February 22, 2024
The Honorable Gavin Newsom, Governor

The Honorable Mike McGuire, Senate President Pro Tem
The Honorable Robert Rivas, Speaker of the Assembly
State Capitol Building
Sacramento, CA 95814
RE: State Budget: Proposition 64 Tier 3 Program Revenues
Dear Governor Newsom, Senate Pro Tem McGuire, and Assembly Speaker Rivas:
The undersigned organizations respectfully urge you to restore full funding for the Proposition 64 (Adult
Use of Marijuana Act Initiative) youth, environmental, and public safety programs (“Tier 3 programs”).
When voters approved Proposition 64, they dedicated significant Cannabis Excise Tax and Cultivation
Tax revenues for the Tier 3 programs. These revenues are a significant funding source for childcare for
low-income families, youth substance use prevention programs, environmental remediation including
restoration of watersheds damaged by cannabis cultivation, and law enforcement programs. Many of
our groups worked on the Proposition 64 Tier 3 language and want to ensure the provisions of law and
promises made to date are upheld.
Unless corrective action is taken, these programs will suffer from a budgetary shortfall of more than
$150 million collectively over the 2023-24 and 2024-25 budget years as a result of the Legislature’s
elimination of the Proposition 64 cultivation tax.
Promises Made in the 2021-22 Budget (AB 195 Budget Trailer Bill):
AB 195 eliminated the Proposition 64 Cultivation Tax, among other actions, at the request of the
cannabis industry. Our organizations withdrew our opposition when the Legislature and Governor
agreed the ultimate outcome of the cultivation tax repeal would be revenue neutral including
establishing a $670 million annual funding target for Tier 3 programs. We greatly appreciate the
Legislature and Governor appropriating $150 million from the General Fund in the 2021-22 budget to
help backfill the lost Tier 3 cultivation tax revenues.
Unfortunately, even with the General Fund allocation, Tier 3 revenues will have fallen short of the $670
million annual target by more than $50 million in just the 2023-24 budget. This has had real world
impacts to Tier 3 programs. For example, Tier 3 funding for children’s programs was $30 million below
the funding target in the 2023-24 budget alone.
The Governor’s optimistic 2024-2025 budget proposal projects $568.8 million for Tier 3 programs —
more than $100 million below AB 195’s $670 million annual Tier 3 revenue target. That would mean that
Tier 3 programs will have received $151 million less than the AB 195 target over just two budget years.
The shortfall will be even more if the actual Cannabis Excise Tax revenues fall short of the Governor’s
optimistic projections. These shortfalls will mean thousands of fewer child care slots for low-income
children, fewer youth benefitting from substance abuse prevention programs, continuing environmental
degradation of our watersheds, and other harms.
Proposition 64 – Voters Guaranteed Tier 3 Revenues
When voters approved Proposition 64 in 2016, they expressed clear intent they wanted Tier 3 programs
to receive significant funding:
“It is the intent of the People in enacting this Act to accomplish the following: “Generate hundreds of
millions of dollars in new state revenue annually for restoring and repairing the environment, youth
treatment and prevention, community investment, and law enforcement.” Prop. 64, § 3(t).
“The Adult Use of Marijuana Act will crack down on the illegal use of water and punish bad actors, while
providing funds to restore lands that have been damaged by illegal marijuana grows.” Prop. 64, § 2.F.
Furthermore, voters expressly protected allocations to the Tier 3 programs in Proposition 64’s
provisions:
“Prior to July 1, 2028, the Legislature may not change the allocations to programs specified in
subdivisions (d) and (f) of this section.” [Subdivision (h) of Section 34019 of the Revenue and Taxation
Code, as enacted under Proposition 64, referring to the Tier 3 funding allocations].
Furthermore, Proposition 64 requires that other amendments must be “consistent with the purposes
and intent of this Act...” (Section 10 of Proposition 64)
Those statements reflect voters’ clear intent that Proposition 64 provides robust and protected funding
for the environmental restoration and remediation programs and youth services at levels contemplated
by the voters and those levels must be honored in any legislative alteration to the Act’s tax structure.
Therefore, revenue neutrality is a necessary component to any amendment of the initiative. Any
reduction of tax revenue for Tier 3 programs creates a risk that the legislation will be deemed invalid.
In other words, unless it results in revenue neutrality, the elimination of the Cannabis Cultivation Tax is
legally vulnerable because:
1. It alters the allocation of funding to Tier 3 programs by eliminating one of the two key revenue
streams that fund the Tier 3 allocations; and
2. It would be inconsistent with the voter’s intent expressly stated in Proposition 64’s text to
provide significant funding to Tier 3 programs.
Solutions to Preventing the Loss of Tier 3 Funding as a Result of the Cultivation Tax Repeal:
We greatly appreciate the Legislature’s intent to establish a program that resulted in revenue neutrality
when it eliminated the Proposition 64 Cannabis Cultivation Tax. Unfortunately, the net result will be
more than $150 million in projected Tier 3 revenue losses over the two budget cycles, with significant
continuing losses in subsequent years.
Fortunately, you have options on how to fix this problem and achieve the Tier 3 revenue neutrality goal.
These options include, among others, the following:
● Reinstate the Cannabis Cultivation tax on large cannabis cultivators (outdoor cultivation over
one acre and indoor cultivation over 20,000 square feet);
● Appropriate additional General Fund or other revenues, when available; and
● Increase the Cannabis Excise Tax beginning in 2025, consistent with AB 195 (Revenue and
Taxation Code Section 34011.2)
We greatly appreciate your commitment to Tier 3 revenue neutrality. We look forward to working with
you to correct this shortfall. We will follow-up this letter with a request to meet with your offices.
Thank you for considering these concerns.
Sincerely,
Jim Keddy Matt Baker Mary Ignatius Dr. Lynn Silver

Executive Director Policy Director Executive Director Principal Investigator
Youth Forward Planning and Parent Voices California Getting It Right from
Conservation League the Start
Courtney Armstrong Benita Ramsey Pam Flick Diane Ortiz

Director of Executive Director California Program CEO
Government Affairs Rainbow Pride Youth Director Youth Alliance
First 5 Association of Alliance Defenders of Wildlife
California
Douglas Styles Adriane Armstrong Judi Strang Jennifer Singer

Executive Director CEO Program Manager Executive Director
Huckleberry Youth Juma Ventures San Dieguito Alliance Bright Futures for
Programs, Inc. Youth
Linette Lomeli Susan Jordan Ishmael Pruitt Colin Ford
Executive Director Executive Director CEO Director of Policy
Madera Coalition for California Coastal Project Optimism Fresh Lifelines for
Community Justice Protection Network Youth
Matt Clifford Nick Jensen John Aguirre David Kakishiba

California Director of Conservation Program CEO Executive Director
Law and Policy Director Central California East Bay Asian Youth
Trout Unlimited California Native Plant LGBTQ+ Collaborative Center
Society
Kao Ye Thao Ivan Hernandez Redgie Collins Tom Wheeler

Director of Policy & Director of Movement Legal and Policy Executive Director
Partnerships Building Director Environmental
Hmong Innovating Gente Organizada California Trout Protection
Politics
Information Center
Christian Green Paul Mason Jackee Riccio Nane Alejandrez

Policy and Advocacy V.P., Policy & Incentives Executive Director Executive Director
Director Pacific Forest Trust Cannabis for Santa Cruz Barrios
Sanctuary of Hope Conservation Unidos
Raquel Shipp Ruben Rodriguez Maryjane Puffer Leticia Aguilar
Executive Director Executive Director Executive Director CEO
Sacramento Youth Pueblo y Salud, Inc. The Los Angeles Trust Native Sisters Circle
Center for Children's Health
Derrel Roberts Jeff Farber K.C. Strang Heidi Anderson Swan

Executive Director Executive Director Executive Director Founder
Roberts Family Helpline Youth San Marcos Prevention Hermosa Coalition for
Development Center Counseling Coalition Drug-Free Kids
Melissa Flores Rachel Minnick Vince Leus Don Carney

Director Chief Collaboration Associate Program Executive Director
Mending Fences At JM Officer Manager Youth Transforming
Ranch PRO Youth & Families Prevention Institute Justice
Michelle Miranda Adrienne Shilton Ryan Cesena Layhearn Tep

CEO & Founder Vice President of Public Program Coordinator Development Director
Alliance for Community Policy & Strategy Tarzana Treatment Future Leaders of
Empowerment The California Alliance Centers PEP America
of Child and Family
Services
Lisa Fraser Fernanda Lucas Dr. Tammé Shinshuri Uniting Communities
Executive Director Program Director Executive Director for Equitable Health
Center for Family Promotores Oracles of Truth Policies Coalition
Strengthening Collaborative Of San Academy (UCEHP)
Luis Obispo County
John Kindred Lucy Herrera Carly Lopez Margaret Brodkin

Co-Founder Executive Director Prevention Programs Director
Long Beach Legacy LA Coordinator Funding The Next
Environmental Alliance Day One Generation
Felicia Carbajal Ethel Fimbres Heather Williams Kristan Culbert

Executive Director Program Director Director, Policy & Associate Director
The Social Impact Youth Business Alliance Outreach California River Conservation
Center California AfterSchool American Rivers
Network
cc: The Honorable Scott Wiener, Chair, Senate Budget and Fiscal Review Committee
The Honorable Jesse Gabriel, Chair, Assembly Budget Committee
The Honorable Caroline Menjivar, Chair, Senate Budget and Fiscal Review Subcommittee #3
The Honorable Josh Becker, Chair, Senate Budget and Fiscal Subcommittee #2
The Honorable Corey Jackson, Chair, Assembly Budget Subcommittee # 2
The Honorable Steve Bennett, Assembly Budget Subcommittee #4
The Honorable Steve Glazer, Chair, Senate Governance and Finance Committee
The Honorable Jacqui Irwin, Chair, Assembly Revenue and Taxation Committee

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February 22, 2024

The Honorable Gavin Newsom, Governor

RE: State Budget: Proposition 64 Tier 3 Program Revenues

Thank you for considering these concerns.

Jim Keddy Matt Baker Mary Ignatius Dr. Lynn Silver

Courtney Armstrong Benita Ramsey Pam Flick Diane Ortiz

Douglas Styles Adriane Armstrong Judi Strang Jennifer Singer

Matt Clifford Nick Jensen John Aguirre David Kakishiba

Kao Ye Thao Ivan Hernandez Redgie Collins Tom Wheeler

Christian Green Paul Mason Jackee Riccio Nane Alejandrez

Derrel Roberts Jeff Farber K.C. Strang Heidi Anderson Swan

Melissa Flores Rachel Minnick Vince Leus Don Carney

Michelle Miranda Adrienne Shilton Ryan Cesena Layhearn Tep

John Kindred Lucy Herrera Carly Lopez Margaret Brodkin

Felicia Carbajal Ethel Fimbres Heather Williams Kristan Culbert

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